Ericsson announced that it would take a sizable charge against earnings to write down the value of ST-Ericsson. Ericsson reported that the charge of 8 billion Swedish kronor, or $1.2 billion, would reduce its earnings in the fourth quarter by a corresponding amount. Ericsson is the world’s biggest maker of mobile network equipment.
ST-Ericsson was created in February 2009 as a joint venture with STMicroelectronics, the French semiconductor maker. ST-Ericsson combined Ericsson’s mobile platforms business and STMicroelectronics’s ST-NXP wireless businesses to exploit the value of both partners’ intellectual property and patents on components for handsets and modems using Long Term Evolution, or LTE, technology. STMicroelectronics has already announced its intentions to exit the venture after an unspecified transition period. Ericsson said it did not intend to buy its partner’s 50% stake in ST-Ericsson.
When the venture was announced in August 2008, the two partners predicted that the new company would become a world leader in supplying chips and components to some of the world’s largest communications companies, including Samsung, Nokia, Sony Ericsson, LG, and Sharp. ST-Ericsson’s prospects deteriorated after Stephen Elop, the chief executive of Nokia, announced that Nokia would abandon its Symbian smartphone operating system for Microsoft’s Windows system in February 2011. ST-Ericsson supplied the components for Nokia’s Symbian handsets, and Nokia had been one of the venture’s biggest customers.
The future of the business is in doubt. The ST-Ericsson venture made popular cellphone components, but ultimately proved to be unprofitable. The venture has never made a profit as it tried to attract business from industry leaders in Asia and the United States. The venture has generated $2.7 billion in losses since its start.
Bengt Nordstrom, chief executive of industry consultant Northstream, said, “We don’t have the kind of silicon industry in Europe that exists in the United States and Asia, so this was always a difficult attempt.” Some analysts believe that Ericsson could eventually shut down ST-Ericsson after trying to sell it off wholly or in parts.
